Weinberg v. Transamerica Ins. Co.

Decision Date14 June 1984
Citation465 N.E.2d 819,62 N.Y.2d 379,477 N.Y.S.2d 99
Parties, 465 N.E.2d 819 Samuel WEINBERG, Appellant, v. TRANSAMERICA INSURANCE COMPANY, Respondent.
CourtNew York Court of Appeals Court of Appeals
Robert A. Scher and Michael G. Rosenberg, New York City, for appellant
OPINION OF THE COURT

JONES, Judge.

In effecting a settlement of personal injury claims against a third-party tort-feasor arising out of a motor vehicle accident, an insured will be held to have prejudiced the subrogation rights of his insurer unless he establishes by express provision in the release executed to the third party or by necessary implication arising from the circumstances of the execution of the release that the settling parties reserved the rights of the insurer against the third-party tort-feasor or otherwise limited the extent of their settlement to achieve that result.

Plaintiff was injured in an automobile accident while a passenger in a motor vehicle owned and operated by James Felder. Felder was insured by Government Employees Insurance Company (GEICO) for coverage of basic no-fault benefits for both medical payments and lost earnings. Plaintiff was insured by Transamerica Insurance Co., inter alia, for additional personal injury coverage, i.e., coverage for economic loss above the statutorily required $50,000 no-fault coverage.

Plaintiff claimed, and was paid, the maximum amount available under Felder's no-fault policy with GEICO and also made a claim for extended economic loss under his own policy with Transamerica. At the same time plaintiff brought an action in negligence against Felder. When this action was settled for $17,500 and plaintiff gave Felder a general release, Transamerica denied liability under its policy with plaintiff on the ground that by releasing Felder plaintiff had breached his obligation under that policy not to prejudice the subrogation rights of the insurer. Plaintiff thereupon instituted the present action against Transamerica to recover benefits to which he claimed he was entitled under the policy that had been issued to him.

Supreme Court granted Transamerica's motion for summary judgment and the Appellate Division, 93 A.D.2d 1008, 461 N.Y.S.2d 665, affirmed, without opinion. We granted leave to resolve what were perceived as conflicting decisions in the lower courts as to the legal significance to be attached to releases given by insured persons in circumstances such as the present. 1

It is the burden of the insured to establish by virtue of an express limitation in the release or of a necessary implication arising from the circumstances of its execution that the release did not operate to prejudice the subrogation rights of the insurer. This flows reasonably from the express obligation of the insured under his policy of insurance not to prejudice the subrogation rights of the insurer because it is the insured who participates in and can control the fashioning of the terms of the settlement of the insured's action against the third-party tort-feasor, a procedure in which the insurer has no part.

We recognize that it is usually the burden of the party seeking to be excused from performance of a contract obligation on the ground that the other party has failed to perform his reciprocal obligations, to establish such failure. Thus, in the customary formulation it could be said that, in cases such as the present, to establish justification for refusal to pay benefits due under its policy of insurance on the ground that the insured breached its agreement not to prejudice the subrogation rights of the insurer, it would be incumbent on the insurer to establish the fact of such breach by the insured. The normal allocation of the burden of proof must give way in this instance, however, to the practicalities of the situation and to a realistic evaluation of the relative positions of the insured and the insurer. As stated, the insurer has no opportunity to participate in the negotiation or the determination of the terms of settlement between the insured and the third-party tort-feasor. By contrast, of course, the insured has every opportunity to do so, and has it in his power to obviate all controversy as to the scope of the release. In these circumstances, once the insurer has established the existence of a release, alleged to have constituted a breach of the insured's agreement not to prejudice the insurer's subrogation rights, we conclude that it is fair and fitting and no undue imposition on the...

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